Green Productive Supply Chain

Dr. A. K. Dey
Birla Institute of Management Technology
Greater NOIDA

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Outline
 Green (Sustainable ) Supply Chain Management
(GSCM)
 Some world class examples
 Creating a green supply chain
 Drivers & Challenges for GSCM
 Strategies
 Green Productive SCM
 Wal-Mart A case study
 Top 10 environmental initiatives
 Rewards of sustainability
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GSCM
 Green Supply Chain Management (GSCM)
 process of using environment friendly inputs
 transforming these inputs into outputs that can
be reclaimed and re-used at the end of their
lifecycle
 thus, creating a sustainable supply chain

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Competitive Advantage
 Types of SCM: Efficient, Responsive, Risk
Hedging and Agile
 With

 Increasing customer awareness

 Regulatory norms,
greener supply chain management practices will have
a competitive advantage
 With increasing disruptions/terrorism
 Resilient Supply Chain
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Examples
 Dell saves over $20mn annually by supply
chain and packaging improvements
 Texas Instruments reduced packaging by
$8mn (20% annual savings) each year
through
 source reduction
 Recycling
 use of reusable packaging systems

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Examples
 Pepsi-Cola saved $44mn by
 switching from corrugated to reusable plastic shipping
containers
 Dow Corning saved $2.3mn by
 using reconditioned steel drums in 1995 and conserved
7.8mn pounds of steel
 GM reduced its disposal costs by $12 million by
 establishing a reusable container program with its
suppliers.

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Examples
 Johnson & Johnson's energy efficiency program resulted
in an estimated $30 million in annualized savings over the
10 years prior to 2006. Also, Johnson & Johnson's Green
House Gas reduction projects are achieving an average
16% internal rate of return, according to the company's
2006 sustainability report
 Nestle's packaging material savings between 1991 and
2006, part of an ongoing, company-wide sustainability
program, Resulted in $510 million of savings worldwide

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Examples
 Heineken aims to reduce fuel and electricity costs
by 15% for the period between 2002 and 2010.
 As of a 2006 sustainability report, Heineken had achieved a
savings of 6%, even after the acquisition of new breweries.

 Wal-Mart recently set the goal of a 5% reduction

in packaging by 2013
 It has been widely reported that the retail giant expects the cut in
packaging will save 667,000 metric tons of carbon dioxide from
entering the atmosphere
 Moreover, the company anticipates $3.4 billion in direct savings
and roughly $11 billion in savings across the supply chain

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Creating a green supply chain
 Many organizations have introduced ‘greening’
requirements
 purchasing clauses, targets, practices, and
technologies
 Automotive firms frequently require suppliers to
certify to ISO 14001 (Toyota and Ford)
 Starbucks Coffee as well as Ben and Jerry’s
require raw material suppliers to meet guidelines
for sustainable farming

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Creating a green supply chain
 Many organizations require
 suppliers avoid specific materials such as
chemicals that may be deemed hazardous to the
environment (DuPont, Seventh Generation, and
organic supply chains)
 Many firms invest in recycling systems intended to
retrieve waste or used product from customers
(Kodak, Hewlett Packard, and Fuji-Xerox).
  

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Drivers for GSCM
 Rising energy costs
 Global concerns about green house gases

 Climate change

 Regulations like RoHS, EPA And others

 Technology innovations

 Increased public awareness of

environmental issues

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Challenges in Adopting a GSCM
 Lack of information about the green supply
chain best practices
 Few software tools for enabling end-to-end
optimization of supply chain along with
environment management
 Global sourcing makes tracing of carbon
footprint difficult

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Strategies
 According to a study in US for Greening
priorities of investments were
 Regulatory requirements (22%)
 Brand image and influence on markets (19%)
 Product /Process innovation (15%)
 Cost cutting (13%)

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Strategies
 Setting up GSCM
 Align green initiatives with the strategic objectives
 Adopt GSCM best practices
 Use technology solutions with a special focus on end-to-
end solution
 Reduce packaging and in-transit damage when shipping
 Reducing inventory and identifying optimal distribution
solutions.
 Perform lifecycle analysis for choosing
products/solutions to minimize environmental impact.

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Strategies
 Risk-based Strategies
 In response to stakeholders requirements
 Efficiency-based Strategies
 ‘eco-efficiency’ or ‘lean-and-green’ approach
 Innovation-based Strategies
 is more environmentally specific.
 Closed-loop Strategies
 Often referred to in its simplest form as ‘reverse logistics,’
 closing the loop involves the capture and recovery of
materials for either re-manufacture (high-value) or recycling
(low value)

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Green Productive SCM
 For a firm are these separate?
 Pollution prevention initiatives
 Manufacturing needs such as Quality & Productivity
improvements
 Most Pollution prevention programs fail to derive
vital synergies & working relationships with
manufacturing
 For a firm it is essential to drive competitiveness on
both Pollution prevention and Manufacturing fronts

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Concept of Green Productivity
 Green Productivity is the integration of two
important developmental strategies
 Productivity improvement
 Environmental protection
 Productivity provides the framework for
continuous improvement
 Environmental protection provides the
foundation for sustainable development.
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Green Productivity
 Green Productivity is a strategy for enhancing
productivity and environmental performance for
overall socio-economic development
 By applying

 appropriate techniques
 Technologies
 management systems
to produce environmentally compatible goods and
services.

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GP and SCM
 These have synergies and help firms to
 enhance their productivity & quality
 improve the environmental performance
 GP improves environmental performance by
 First reducing the waste at the source
 Then reusing, recovering, and recycling waste
 Any residual waste will be treated by the End Of
the Pipe (EOP) system

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GP and SCM
 GP enhances productivity and quality of
products and services
 GP

 improves the profitability of the organizations

 creates an advantage on competitiveness by
reducing the cost of production and operation

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GP and SCM
 SCM establishes
 continuous exchange of information
 upgrading the performance along the material flow
continuum
 SCM initiatives will assist organizations,
particularly SMEs, in acquiring technical
knowledge, and receiving assistance from
others on the improvement of their
environmental performance
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GP and SCM
 Synergy of GP & SCM will create a win-win
situation by enhancing the productivity,
quality, profitability, and environmental
performance of the entire supply chain
 GP-SCM applications will provide
organizations with strong competitiveness
for the global market.

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A poster green SCM story...
October 2005, Wal-Mart CEO Lee Scott committed
the company to three ambitious goals:

•To be supplied 100 percent by renewable

energy

•To create zero waste and

•To sell products that sustain Wal-Mart's

resources and the environment.
To meet those goals, Wal-Mart would seek to transform its supply
chain, in cooperation with suppliers and environmental nonprofit
organizations.
 Significant Initiatives
Hired Blu Skye Sustainability
Consulting to help identify the
categories of Wal-Mart's products
and processes that had the greatest
environmental impact.

Wal-Mart/Blu Skye team multiplied

sales data with environmental
impact factors from the Union of
Concerned Scientists, and identified
14 focal areas, bundled into three
broad categories:

•renewable energy
•zero waste and
•sustainable products.
Significant Initiatives
For each focal area, an executive sponsor
and a network captain took charge of
building a sustainable value network of
Wal-Mart employees and representatives
from government, academia, environmental
nonprofits, suppliers, and other
stakeholders.

The goal was to reduce environmental

impacts and derive profit from that positive
change.

Network captains were typically senior

managers from Sam's Club or Wal-Mart
who were considered to be among the
company's top performers.
 Significant Initiatives

Engaged external organizations into the loop, to create a “sustainable value

network”
 Concrete Steps
1. Identify Goals, Metrics and New
technologies
-- Beginning in 2008, Wal-Mart formally planned to use a system to
"measure and recognize its entire supply chain based upon each
company's ability to use less packaging, utilize more effective
materials in packaging, and source these materials more efficiently
relative to other suppliers."

--The scorecard is an important enabler for Wal-Mart to achieve its

public goal of reducing the packaging used by all of its suppliers by
5 percent between 2008 and 2013.

-- If achieved, this five-year program is expected to generate $3.4

billion in savings. In the first month, 2,268 vendors have logged onto
the packaging scorecard site and 117 products have been entered
into the system.
 Concrete Steps
2. Certify Environmentally Sustainable products
-- According to an international study released in 2006, all species of wild
seafood are greatly depleted and predicted to collapse within 50 years.
-- Within this ominous business environment, Wal-Mart sourced
approximately $750 million in seafood in 2006, and the company's
volume of seafood business is growing at roughly 25 percent a year.
-- The Marine Stewardship Council (MSC), established by Unilever and
the World Wildlife Fund (WWF) in 1997, has defined standards for
certification as a sustainable fishery, based on the United Nations' Code
of Conduct for Responsible Fishing and on input from fishermen,
retailers, government, nonprofits, and other stakeholders.
-- The MSC certifies third parties to audit and certify fishery and
processor compliance throughout the supply chain, from "boat to plate."
-- Walmart sources only MSC certified fish, lately!
Concrete Steps
3. Providing Network partner assistance
to suppliers
Wal-Mart is able to provide suppliers with valuable knowledge
and process assistance through its strong relationships with
the environmental nonprofits in its networks.
Eg: when the Chinese government threatened to shut down a
number of textile dye houses, including one of Wal-Mart's
suppliers, in order to reduce pollution in Beijing ahead of the
2008 Olympics, Wal-Mart immediately took action
- put the dye house in touch with one of the NGOs in their
network, which helped it formulate a more environmentally
friendly process that reduced its toxic output very quickly.
Concrete Steps
4. Committing to larger volumes of
environmentally sustainable products
-- By making a commitment to buy a specified quantity of
each product certified as environmentally friendly, Wal-
Mart gives its suppliers an incentive to develop and
produce that product.

-- In its textiles network, Walmart learned that, along with

the cost of certification, farmers faced a near-term
reduction in yields with organic cotton farming, as well as
the need to diversify crops. This forced farmers to alternate
the planting of cotton with legumes, vegetables, or other
cover crops to rejuvenate the soil.
 Concrete Steps
-- However, to meet organic standards, a farm needed to
remain free of non-organic pesticides or similar materials
for a period of three years prior to the harvest of any
organic crop. To increase and secure its supply of organic
cotton,

-- Wal-Mart made a five-year verbal commitment to buy

organic cotton from farmers. "It gives them confidence and
stability

-- Wal-Mart (which became the world's largest purchaser of

organic cotton in 2006) also agreed to purchase the organic
cotton farmers' alternate crops.
Concrete Steps
5.Cutting out middlemen
An immediate but unanticipated benefit of MSC
certification in the seafood network—and of organic
cotton certification in the textile network—was full
visibility of the chain of custody, and hence the
opportunity to eliminate intermediaries.

By simplifying its supply chain, Wal-Mart reduced the

frequency of seafood stock-outs, improved the quality of
the fish it was receiving, reduced paperwork and
transaction costs, and reduced the costs and
environmental impacts of transportation.
Concrete Steps
6. Consolidating direct suppliers
Over the short term, Wal-Mart has had many diverse
relationships with many factories, often working with a
supplier one purchase order at a time or one season at a
time.
Says sustainability vice president Ruben: "Right now we
account for two percent of a lot of people's business,
especially overseas. We know that needs to be a lot
larger—maybe 50 or 60 percent."
Concrete Steps

7. Restructuring the buyer role

To better manage relationships with suppliers, the textiles
network implemented a major organizational change: It
redesigned the role of its buyers.
In the past, textiles buyers had been generalists, handling
a wide variety of responsibilities (as buyers did in other
product categories).
The textiles network divided this function into four
different job categories:
Concrete Steps

8. Licensing environmental innovations

if one factory is significantly more energy-efficient than
others, it's got an advantage. If it shares that
information, the competition might gain a much better
understanding of its production costs and therefore its
profit margins.

"Information about how much energy a product

consumes is not particularly sensitive."
 Example Greening decisions...
•Buying diesel-electric and refrigerated trucks with a power unit that
could keep cargo cold without the engine running
saving nearly $75 million in fuel costs and eliminating an
estimated 400,000 tons of CO2 pollution in one year alone.

• Making a five-year verbal commitment to buy only organically grown

cotton from farmers, and to buy alternate crops those farmers need to
grow between cotton harvests. Last year, the company became the
world's largest buyer of organic cotton.

• Promising by 2011 to only carry seafood certified wild by the Marine

Stewardship Council, a group dedicated to preventing the depletion of
ocean life from overfishing.

• Buying (and selling) 12 weeks' worth of Restrictions on Hazardous

Substances (RoHS)-compliant computers from Toshiba.
Top 10 Environmental Initiatives
 Automate, automate, automate
 more you automate —such as B2B e-commerce—the
more efficient it becomes and the less paper is consumed
 Outsource, outsource, outsource
 Most outsourcing solutions have a cost benefit, but there
is also an environmental benefit of data center
consolidation and increased use of electronic transaction
processing
 Running your own data center is not only costly, but
environmentally impactful as well.

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Top 10 Environmental Initiatives
 Increase supply chain visibility
 to better control of inventory (reduce over-ordering and
warehouse space required)
 optimize logistics processes and transportation, and reduce the
need to expedite shipments or duplicate orders. The less we
ship and store, the less our carbon footprint!
 Consider telecommuting
 there’s value in face time, but given transportation costs and
commute distances for many employees—as well as the
advancements in remote technology—it makes sense for many
workers to work for home at least one or two days a week.

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Top 10 Environmental Initiatives
 Utilize video conferencing
 an eco-friendly way to interact with remote
employees and ensure their engagement in critical
discussions and important meetings
 Reward eco-friendly behavior
 consider having a reward program for employees
that take actions to reduce their own carbon footprints
• by buying a hybrid or fuel cell vehicle
• organizing and participating in office carpools
• organizing recycling programs for hardware and home electronics
• use of permanent drink ware instead of plastic or Styrofoam cups

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Top 10 Environmental Initiatives
 Deploy a viable Transportation Management System
 Optimize the transportation of goods
 Eliminate less-than-truckload deliveries
 Ensure route optimization to minimize fuel consumption
 Green the exterior and roof of the building
 Make the building more environment friendly by upgrading the
heating and cooling systems to be energy efficient
 use fewer machines with higher capacity and lesser cooling
needs
 consider adding a ‘greenroof’ which has been shown to minimize
heating and cooling needs by 25% or more.

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Top 10 Environmental Initiatives
 Make sure your vendors are earth friendly
 Ensure that your suppliers and vendors have green
projects and standards in place as well and ask for
documentation of these initiatives
 Get the CEO’s support
 Obtain support at the highest levels of management to
ensure that green initiatives will be followed through
and encouraged by the company

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Rewards of Sustainability
 Operational cost savings due to reduced waste
 Compliance penalty reductions–the benefits of which go
straight to the bottom line
 Reduced health and safety costs
 Lower labor costs–better working conditions can increase
the motivation and productivity, and reduce the
absenteeism of logistics workers
 Reduced water, energy, fuel and transportation costs
 Reduced dependence on fluctuating prices of resources

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Conclusion
 Green & Productive initiatives, if properly
managed, can enable organizations to be
responsible corporate citizens and also
deliver higher profitability and competitive
advantage

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 Thank you

Any questions?
Dr. A. K. Dey
Birla Institute of Management Technology
Mobile: 9810387104
E Mail: [email protected]
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